Domestic gold ETF flows in Feb jump 7x over Jan

The spike in market volatility has prompted mutual fund (MF) investors to lap up units of gold exchange-traded funds (ETFS), with the category seeing the highest flows since 2008.

In February, net flows into these schemes stood at ~1,483 crore. This was seven times the ETF flows received in the previous month.

Experts said investors are chasing gold-linked products due to the robust ‘trailing’ returns and as a safe haven, amid the current market volatility. “Gold has seen a sharp rally in prices, which is why investors are pouring into this asset class as it is showing good returns. Also, the uncertain conditions globally, amid the coronavirus scare, have prompted investors to look for pockets of safety,” said Vidya Bala, co-founder of Primeinvestor.

In 2019-2020, gold prices have gone up 37 per cent in the domestic markets. Since the low of August 2018, the prices are up 48 per cent.

To tap the investor appetite for gold-linked products, the government recently launched the 10th series of sovereign gold bonds. However, experts feel ETFS are more practical for investors looking to hedge.

“Sovereign gold bonds are not very liquid. If an investor wants to enter for the short- to medium-term, then ETFS make more sense. However, those looking for long-term investment can opt for gold bonds,” Bala added. The latter also offers fixed coupon payments along with capital appreciation on gold prices.

However, industry experts said entering gold-linked products at current levels may lead to muted returns, as the prices have already run up with significant gains.

SIPS see marginal dip Systematic investment plans (SIPS) in the MF industry saw a marginal dip in February at ~8,513 crore. Equity flows coming into the industry have so far been holding up, with the February tally coming in at a 11-month high. The flows were at ~10,795 crore, 37 per cent higher than the previous month’s tally.

However, MF advisors said that flows can come under pressure. This is because market volatility is likely to heighten with coronavirus showing no signs of abating.

Industry participants said following Monday’s 2,000point crash, several clients have started calling up their advisors to assess the impact on their investments and future course of action.

“However, we have been advising our clients to stay put with their goal-linked investments. Only if they are close to reaching their goals, can they consider withdrawing their investments, partially or fully,” said Amol Joshi, founder of Plan Rupee Investment Services.